Abstract

This article delves into the relationship between liquidated damages, limitation, and arbitration in contractual disputes. It begins by explaining the concept of liquidated damages, highlighting their role in compensating parties for losses incurred due to contract breaches. Section 74 of the Indian Contract Act forms the legal basis for liquidated damages, distinguishing them from penalties. The article discusses relevant case laws, including judgments from the Supreme Court and various High Courts, to elucidate the criteria for categorizing liquidated damages and penalties. Furthermore, the article explores the dispensation of proof of actual loss in claims for liquidated damages, citing Section 74’s provision and judicial precedents. It discusses scenarios, such as public utility contracts, where proof of loss may be impractical, thus necessitating compensation based on pre-estimated damages. Shifting focus to limitation periods in arbitration agreements, the article explores the application of Article 137 of the Limitation Act and the concept of the "breaking point" in determining the accrual of the cause of action. It attempts to highlight the significance of adhering to statutory limitations and the inability to extend these periods through negotiations or correspondence. In conclusion, this article attempts to provide a better understanding of the concept of liquidated damages and law governing it, at the same time, focussing on factors such as period of limitation which affect the claims for liquidated damages with special focus on arbitration agreements.

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